VietNamNet Bridge – The 2013 outlook for Viet Nam's banking and finance sector remains "mixed" since the pace of planned reforms remains slow, according to a new report.

A VP Bank branch in the central province of Quang Tri. The report notes that the Government is moving to restructure and address the bad debt exposure of the nation's banking system.

The report, released by real estate services firm Cushman & Wakefield, says Viet Nam's banking and finance sector has been focused on "the growing problem of non-performing loans and the need to buy back bad debts".

In the last quarter, commercial banks have cut deposit rates to around 11-12 per cent for terms of one to two years, and in turn, have gained better capital ratios.

The report notes that the banking sector is the main source of Viet Nam's bad debt structure and that the government is moving to restructure and address banks' bad debt exposure.

It says credit growth has been subdued as relevant government policies bite into the property market which has been frozen for some time now.

Credit growth was estimated at 8.61 per cent as of October and at less than 12 per cent at the year-end.

"The government's main focus at this time is to restructure non-profitable banks and control bad debt by assisting credit agencies and enterprises in identifying and re-classifying such debt," the report says.

It emphasises the need for these institutions to tidy up non-performing loans and remarks that "there is still much debate on the most effective methods."

Overall, while some of Viet Nam's economic indicators have been positive, the outlook remains tenuous, the report says.

Credit restrictions have kept inflation under control and the government is still hoping to achieve a rate near 12 per cent, much lower than around 20 per cent that was recorded at this time in 2011.

Another effect is that a heated property market has cooled down drastically, with apartment pricing down by some 30 per cent on average.

In both the major cities of Ha Noi and HCM City, project construction has come to a standstill, the report notes.

Raising capital is still the main concern, and banks are unable or unwilling to extend large amounts of credit.

The banking sector in Viet Nam is structured in various groups, including wholly-owned foreign banks, state-owned commercial banks, joint stock commercial banks and joint venture banks.

There has been little movement by foreign banks in the second half of 2012. They are considering cost-saving exercises while "local banks are reporting some expansion, with transaction offices being the main focus," the report says.

It says the outlook for the banking and finance sector is mixed as the government implements its restructuring plan.

Broadly, the plan introduces a framework for comprehensive reform of the financial sector, including strengthening internal controls and management, and limiting control of dominant shareholders.

"However, the market sees a real lack of details and willingness to implement," the report remarks.

It says the banking sector is not expected to see any real changes in early 2013 because reform implementation is slow.

Jonathan Sullivan, Asia Pacific Assistant Manager for Research says that the "streamlining of operations within the banking and financial services sector is likely to continue in 2013, but growth opportunities remain ever present in Asia Pacific."

Overall, the decreased regulation and opening-up of these growth markets will continue to be the focus of the industry's expansion efforts in the near to medium-term as developed markets face weaker growth, tightening regulations and operational streamlining.

Source: VNS